The Role of Trusted Contacts in Money Management

Have you ever considered how to ensure your financial accounts' safety? Let's discuss the importance of trusted contacts in maintaining financial security. The Finra Rule 2165 is specifically designed to protect individuals over 65 years old or with a mental disability. We will also cover common scams targeting seniors and why keeping your trusted contacts up-to-date is crucial. We will also share real-life examples that illustrate how trusted contacts can safeguard clients.

FINRA Video for Trusted Contact
NCFG - Blog Post on Trusted Contact

Transcript

Speaker 1:

Welcome to Financial Matters with Richard Oring and Josh Levitus, with New Century Financial Group.

Rich:

Welcome to Financial Matters with Richard Oring. Today's topic is trusted contacts. What are they, and should you be adding them to your accounts? But first, there's going to be a change in the format. You probably haven't heard the voice you're used to hearing opening the podcast, and that's Jag. Jag has left our podcast to do other things, we left on great terms and I wish the best for Jag. But I got a good person to replace him, I have Josh Levitus as one of our co-hosts for the podcast. And Josh, why don't you introduce yourself?

Josh:

Yeah, thanks for the introduction, Rich. Very kind words. A little bit about myself. As Rich said, my name is Josh Levitus. I'm new to the financial services industry. I actually recently graduated from Lehigh University as a finance major.

So a little bit about myself and what made me interested in finance. So when I was younger in elementary school, we played the stock market game. And then even though I think I probably came in last in that game, it just got me super interested in finance and the stock market in general. So then when I was in high school, a little bit more serious about my career, I did an internship with Rich and really enjoyed the opportunity of meeting with him and his clients and learning about the industry in general. Then in college, I did another internship with Rich. Got a little bit more in depth with the clients and all of the processes and started really learning what goes into the financial services industry. Probably the biggest thing I got out of that is finance isn't a one size fits all situation. Every client's different. There's no one product or one investment that works for everyone.

Rich:

Josh, you mentioned that you did two internships with me, but you actually did a third one while you were in college. Do you want to share the differences between two different financial planning firms?

Josh:

Sure. Yeah. So after my second internship, Rich said he thinks it would be a good idea if I got some experience elsewhere just to gain some more perspective of the industry. At the time, honestly, I was a bit disappointed because I wanted Rich to hire me full-time. But looking back, I think it was a really good idea that he had because I went to a different company, bit of a bigger company and more sales focused, and their approach is a little bit different. Instead of being individual with each client, they have some specific products that they're looking to sell and they look for clients that are a good fit for those products, so the other way around than we do business.

Rich:

That's how they focus on new advisors getting in the business, keeping them, limited products on what they're offering and services.

Josh:

So it was more of a sales-based internship rather than a learning-based internship. But it was overall a very good experience, I got to learn more about the industry and how other companies operate. And then I gave Rich a call just to ask him some questions about the company and his perspective as a more experienced advisor and he said I should come back and work for him. Now that I learned those lessons, I was ready to come back. So I was super happy to get that news.

Rich:

I was very happy that you said yes. You didn't hold that bitterness on the advice I gave you.

Josh:

Obviously not.

Yeah, so then just a little bit more about me personally. So most important thing of my life is my girlfriend Lindsay. She was my high school sweetheart. We've been together for six years now, so she's my whole world. Right now, she just started her career as a teacher, so she's a second grade teacher in Philadelphia. I couldn't be more proud of her. And then just some hobbies that I like to do in my free time. In the summer, I like to golf. Not very good at that, but still have a lot of fun. And then in the winter I like to ski, which I'm better at least.

Rich:

So I guess one lesson you learned today is that the investing companies like to invite us to go play golf.

Josh:

Yes. I got to go to my first work golf outing.

Rich:

Which is good for me because I don't want to go golf, so now I can just send you to represent the company.

Josh:

Rich claims he's really good at golf but doesn't like to, which, I don't know.

Rich:

He's lying.

Josh:

Yeah, I think that's a lie.

Rich:

So Josh, you mentioned the differences between the two internships. One of the things I've noticed in the industry where I try to be different, not that I'm the only one doing this, but I try to be a little bit different, and that's by asking a lot of questions and not assuming of the product or what my recommendation is going to be before I ask these questions and listen to the clients. A lot of times clients will call and say, "I need money from one of my accounts," and the advisor uses their own discretion to choose IRA money or a taxable account. I like to get the tax return and I like to run it through a tax rejection because, yes, in our mind we know capital gains might be at 15%, and an IRA is taxes for any income.

But what we don't know is, with all the other income sources and deductions and so forth, are we going to eliminate any credits? Are we going to put their Medicare premiums at a higher rate? So I want to make sure that we do our due diligence when we give our recommendation than just take the instructions and just run with them like say, "Get me a check for $10,000." I think it's more important to ask questions.

And we look at planning holistically. We look at the taxes, we look at the insurance, we look at what kind of risk can deter your goals. We look at the investments. Pretty much everything. I can keep going on and on and on, but I think the biggest thing is what we'd like to pride ourselves on is developing that personal relationship with the client and to really understand them, not just what their goals are, but opening the hood and seeing how the taxes work, how their asset allocation works, not just on the accounts we manage, but all their accounts. And we look at it as a household, if that's what the client's goal is, to husband and wife and so forth. So it's a little bit, maybe we should in the future do a whole podcast just on holistic financial planning.

Josh:

Yeah, that'd be fine if we want to put some people to sleep. No, I'm just kidding. But yeah, exactly what you said. Every day it amazes me how much more goes into financial planning and financial advising that I really realize. Like you said, there's so many different layers to it, especially when you get into tax. It's not just, this investment's going to work for everyone.

Rich:

So Josh, when we talked about you coming onto the podcast, you gave me some comments about reformatting it and some advantages you can bring to the table for this podcast. Why don't you share what your image and what discussing we're going to do of a format going forward?

Josh:

Yeah, for sure. So one of the big changes, obviously you guys can see if you're watching on video is that we're starting to do a video additionally instead of just an audio podcast to make it a little bit more engaging for everyone.

And then Richard mentioned the change, instead of Jag, I'm going to be the co-host of the podcast. And then additionally, as a younger advisor, I think I have a different perspective of what it's like to be from Gen Z. A lot of different things go into it when you're 22 creating a financial plan, than creating a financial plan for someone who's 60 approaching retirement. So we're going to get into some topics that are more focused on younger people, stuff like stuff to look for in your first job, what car to buy to be economical and not be flashy, fun things like that that, that older folks might not always be considering.

Rich:

I think it's going to be really good because you share where you are in your life with me all the time we talk about it and the steps you take, I don't know any of my friends who did that after college. And setting up, not just long-term goals, but your short-term goals. You mentioned Lindsay, and you're already looking to create goals together and you communicate with them, you communicate them with each other, which then keeps you both focused and accountable for funding those goals and meeting them, which I think is great. I think you're going to add a lot of insight of things maybe I lost because of my age. I think that's going to be great.

Josh:

Yeah, I'm looking forward to it.

Rich:

So today's topic is going to be, like I mentioned earlier, on trusted contacts, what they are, why you need them. And what the great part about it is, I'm going to pass this to Josh right now to explain to you what a trusted contact is.

Josh:

Sure, yeah. So a trusted contact is the person that you assigned to us to be the trusted person on your account. So a big common misconception with this is folks think that this is someone that has power of attorney over your account and can make withdrawals, changes to your account, which is not true. This is someone simply, there is a safety precaution if we believe you're being taken advantage of, or have lost complete mental capacity of your account.

Rich:

How about they're missing in action? How many times have we tried calling clients for two weeks with no response?

Josh:

So unfortunately as clients get older, the chances that they're in the hospital or something like that increases, and then there's a situation where something happens with their account and we're not easily able to contact them. So if there's a trusted person assigned to their account, then we have someone to go to when we can't find the client themselves.

Rich:

We just recently had an experience where we're trying to reach the client, knocked on the door, went to the son's house, still no response back from the client, that's been over two weeks now. And I know that this client is healthy, there's no problems, maybe he's busy or just doesn't want to focus on the finances at this point. But being able to reach out to his son to find out that he's not in the hospital, there's no crisis I need to be aware of, put my nerves at ease.

Josh:

Exactly. Yeah. So from our perspective, one of the biggest things is we want to be able to reach our client on a moment's notice in case something happens. On the other hand, FINRA has a very strong focus on assigning a trusted person to accounts, because they're afraid that seniors and disabled folks are going to be taken advantage of in scams. So don't want to get too into that because that's not really a very nice topic, but unfortunately a couple of the biggest scams that we see in the industry, the first one is the romance scam. There'll be someone online claiming to be from a foreign country, they want to come meet you. This one's usually targeting seniors that unfortunately are lonely and they need you to wire them $10,000 to an offshore account for their flight to the United States or something of that nature.

Another big one is an investment scam. This one probably targeting people of all age. I'm sure everyone's seen someone's Instagram that got hacked and they're posting, "Oh, Venmo me 1000 Bitcoin dollars and I'll send you back 10,000." So should be clear that that's a scam, but unfortunately that's something that folks are taken advantage of with.

Rich:

If anything like that ever happens, you get a notice or a phone call or email that you're entitled to an inheritance, all you have to do is pay the taxes because it's a foreign tax. Call us. As financial advisors register with FINRA, we take ongoing courses for scams which are out there. So you may not know what scams are current. We do. So before you just send and wire money to someone, make a few phone calls. We can always do some research and call a broker dealer to see if there's a different scam out there. I wouldn't just be sending money, and I hate to say this, it's not just people who are older or mentally incapacitated. I've seen people, actually, I'm thinking of a particular person who was in our industry who got scammed.

Josh:

Even people in the industry that are aware of it can be taken advantage of.

Rich:

It happens all the time. These scammers get better and better each year and the technology they're using, especially with this whole AI stuff coming out. If it sounds too good, ask questions.

Josh:

But that's a good point, even people in our position in the industry get taken advantage of. It's not something to be ashamed about necessarily. It's something to talk about. So to get a little bit more into the FINRA language of this, FINRA wants us to get a trusted person for anyone that opens an account that's over 65, because they're more likely to be taken advantage of. And additionally, anyone that's over 18 and has a disability would make them more prone to scams.

Rich:

Josh, I want to add one more thing.

Josh:

Sure.

Rich:

To me, when FINRA says disability, I would also add a young adult or any adult who doesn't have that financial background to add a trusted contract. I actually believe that everyone should be adding a trusted contact because if you're 40, are you going to remember to add it in 25 years? Definitely not. Is your advisor going to remember to tell you to add it? I don't know.

Josh:

So for us, it would be great if FINRA required it to be added. Currently, the regulation is that we're required to try our best efforts to get a trusted person from a contact or for a new client. However, if the client does not want to provide a trusted person, they're not required to.

Rich:

Josh, the other thing is even if you add one, you got to remember to update it. That trusted contact becomes disabled, passes away, or you just lose contact with that person. Just like your beneficiaries, you update those when something dramatically changes, you got to look at the trusted contact too.

Josh:

Exactly. So I mentioned how FINRA has some specific regulations on that. In the description of this podcast or in the notes, we're going to include a link to the video FINRA provides with the exact language on what they want to see with trusted persons. But just the summary of what we got there. The first big rule that gets into trusted contacts is FINRA rule 2165, and it's explaining who should get a trusted contact, and that's what I mentioned before, folks over 65 or people over 18 with a disability. Again, anyone should get a trusted person, trusted contact on their account, that's just who FINRA requires us to ask for a trusted person.

Rich:

So Josh, actually, I want to share a story which is a little bit different. It's actually a common elder care abuse in Florida, which the advisors down in Florida know to look for this. So I had a client years ago who her husband unfortunately passed way before she eventually passed, but she had MS. The MS progressed to the point where she became bedridden, and she had a full-time caregiver, and that caregiver eventually moved into our house with her daughter and part of the compensation was the wave of rent, no rent of course. And everything was going great and then all of a sudden, maybe two years into this working relationship, I get a phone call from the aide, the health aide, to change the beneficiary to her. Now, I know this client pretty well. I know she didn't have any children. She wasn't really close to a lot of family members, so it wasn't an unrealistic request. But I know, through my training, that is something which is very highly used for healthcare areas because the person's dependent on them for living. This client can't get to the bed. If she just left, she's screwed.

Josh:

Could be a conflict of interest.

Rich:

So a lot of times healthcare providers are in the position to push their influence on them. So I explained to the client and the caregiver, I said, "Look, I truly believe that you guys really want to do this. I truly believe this." But I knew she had a sister. And I said, "I would feel more comfortable if your sister, by state law would be the beneficiary, understands that you want to make this request and she agrees to it, that there's no question. When I say agree to it, she understands your wishes." And I also had my broker dealer have a representative on the phone too as a witness.

Now, during this conference call, it went well, it went exactly what I expected. The sister was like, "I'm not very close with my sister. We haven't spoke for a while. I didn't expect to be her beneficiary. I can't tell her who to name her beneficiary, but it's okay if it's not me and I'll send you a letter." That was enough to make that change with no questions asked. But I wanted to dot my Is, cross my Ts to make sure that this client's wishes were really her wishes and not the caregiver's. So that's a little bit different.

Josh:

It's almost the opposite.

Rich:

But it's our job to ask these questions. When we're talking to a client and their memory loss or they don't remember, it's common that when they begin to have memory loss, they'll call us every day, "What's my account balance? What's my account balance?" It's our job to start documenting this, let our back office, our broker dealer, know that we have some concerns. So when they call one day and they start doing a distribution which is out of the normal, we're going to question it.

We actually had it last year. We had another advisor in our office whose client thought they won some kind of lottery overseas and that they were entitled, but they needed to pay the taxes, which is very common. They'll say in foreign countries, you have to pay the taxes before you get the money. So she actually sent a check from... She had it sent from an annuity, a third party check I believe, and that went through. And then she called the visor for more money and the visor questioned the reasoning, she got very defensive.

Josh:

That can be a red flag that FINRA tells us to watch out for.

Rich:

Then when we told her that we wanted to talk to a family member, the stories why we couldn't call her daughter, you would be watching on TV, on law and order or something. It was crazy. Like the daughter had this big criminal background and she was scared of her. It was crazy because the daughter was also a client and we know her very well. At the end of the day, it was a scam. But her mental capacity diminished a little bit, which she fell into this. Now she lost money, but she didn't lose as much as she would have if that advisor didn't stop and challenge it.

Josh:

Yeah. I think those were two really good examples because it shows both ends of the spectrum, in that a trusted person can help us decide if something we think might be a scam is not a scam, and on the other hand help us detect a scam before it gets any further.

Rich:

Exactly. The one thing, I'm not sure if you mentioned it or not, is the 15-day hold. So when you open an account with an investing company, technically if we have questions or think there's a decision the client's making which is not in the norm, or can't explain why they're requesting that, we have the right to notify a broker dealer, which can put the instructions on hold for 15 days to investigate. So having that trusted contact where we can call can shorten in that 15 day hold once we know the answers.

Josh:

Because 15 days doesn't sound like a lot, but 15 business days can end up being three weeks. A lot can change in three weeks, so it helps us move things along faster if we have that trusted person to go to.

Rich:

I mentioned taxes a couple of times. Taxes have a due date, and if you don't meet it within that due date, there's interest and penalties. So having that trusted contact, again, shortens that time period.

Josh:

Yes, and I'm not sure how much Rich has gotten into taxes on the podcast in the past, but I like to call Rich the Tax Wizard. I don't know if he talks about it, but Rich had a background in tax and every day there's something new that Rich teaches me about tax, so that'll definitely be a continuing theme we've got on here.

Rich:

Well, I always believe that it doesn't matter what we make, it matters what you keep in your pockets. So Josh, I've been in business for quite a while, as you know, so this trusted contact, what FINRA is now requiring us to ask people over 65, which they're not required to put a trusted contact, it's required that we ask them if they want a trusted contact. So what I've done since that requirement has gone down, I don't care if they're 65 or 21, I'm asking the question and I'm explaining what the trusted contact is. I'm explaining to them it's someone you're going to trust who doesn't have any rights to make instructions. They can't do distributions, they can't do much. It's just more for informational. Like, "Hey, I'm concerned about Josh. Have you spoke to him for a while? Have you noticed any mental issues or anything? Did he have a great loss or something happened for him to be making these calls and acting this way?"

Josh:

Yeah. I think it's a great change that FINRA's making because there's only a benefit to it. There's nothing you're losing by signing a trusted person to your account.

Rich:

The person who can act on your behalf is your power of attorney, which you're going to go to a lawyer and have drafted, most likely.

Josh:

And that's completely different, right?

Rich:

Exactly. After I explain this, I also encourage them not just to add the trusted contact on the accounts I manage, or even if I do a financial plan for it, it doesn't always have to be investments, it could be for financial planning also, I encourage them to reach out to their other financial institutions to add that trusted contact.

Josh:

Across all their accounts, not just their accounts held with us.

Rich:

The other thing I started doing was, the rule basically said that we have to go forward asking new clients to add the trusted contact. I just recently did a email campaign asking my clients, explaining what the trusted contact is, I included the video from FINRA, and I included the form to add trusted contacts. And we did get a few back, which was really nice to see, but it's going to be a practice every year I'm going to do. It's going to be an annual email setting out, asking if they want to add a trusted contact, and reminding them, if you have a trusted contact and it has to be changed, let us know.

So Josh, it's time to close the podcast.

Josh:

Okay.

Rich:

Now, you've heard Jag talk. Jag was a professional DJ on the radio.

Josh:

The bar's high.

Rich:

Very high. So he and I used to have this joke going on, who has the right to do the closing comments? It was almost like, who can get it? Unfortunately, he won most of the time, but I got a few in. But I'm going to allow you to do the closing comments on this podcast since it's your first.

Josh:

Okay. Pressure's on then, I guess. So first off, thank you everybody for listening. I know we haven't recorded one in a while, so I'm very appreciative to everyone that's come back, and thank you to all of the new viewers that have joined recently. If you're not subscribed, please subscribe as we're going to be recording many new podcasts in the ongoing weeks and months to come.

And then additionally, if you take a look at the notes for the show, you'll find some additional information, like I mentioned, from FINRA on the trusted person topic that we had mentioned. And then we want to make this more of an interactive forum for folks, so if you have topics that you want us to talk about, please give us a call and we'd be happy to make that a whole episode of the podcast. And then if you have any friends that are interested in finance also, feel free to send them the podcast for them to listen to.

If you want to contact us, you can email us at info@ncfg.com. You could call us directly at (609) 924-2049. My extension is 105 if you want me directly. And then if you just want some general information, I encourage you to check out our website, www.ncfg.com, and then you could even schedule a meeting directly with Rich or I, or both of us, on the site. And then it would really help us out if you liked the podcast, please take the time to write a review for the podcast, that would be great. And then finally the disclosures.

Rich:

Thank you, Josh. You did great.

Josh:

Thanks, Rich.

Speaker 1:

Richard Oring's and Josh Levitus' branch office is 1 Airport Place, Princeton, New Jersey, 08540. The branch phone number is (609) 924-2049. Securities are offered through Osaic Wealth Inc. Member FINRA SIPC. Advisory services are offered through New Century Financial Group, LLC, a registered investment Advisor, not affiliated with Osaic Wealth Inc. New Century Financial Group, LLC and Osaic Wealth Inc. do not offer tax advice or tax services. Please consult your tax specialist for individual advice. We make no specific comments or recommendations on any tax related details.